Daily Market Color

Rates Trend Higher, Tracking JGB Yields


Bank Of Japan Shifting Course?

The Bank of Japan (BOJ) today offered to buy back an unlimited amount of 10 year bonds at a yield of 0.11%, but did not find any takers.  The BOJ had hoped that the purchase offer would help keep the 10 year yield near 0%, which is the current policy objective.  This move was in response to the 6 bps increase of the 10 year yield driven by media reports that the BOJ may be considering a less accommodative monetary policy.  The challenge to the BOJ is that there has been limited inflation in Japan for many years now, and any policy that removes/reduces stimulus will likely lead to a stronger yen, further compounding the challenges of low inflation in Japan. 



Bank Stocks Lead Equities Markets Higher

Bank stocks were a bright spot in equity markets today driving gains for stockholders.  Two of the three major indices posted gains on the day, with the NASDAQ leading the way (+0.28%) and the S&P 500 higher (+0.18%).  However, the DJIA couldn’t quite end the day in the black losing 0.06%.  Across the curve Treasury yields moved sharply higher, in a bear-steepening pattern.  The yield on the 10 year treasury closed near a yield of 2.95%, up 6 bps.  In foreign exchange markets, the USD Dollar (USD) had another strong day as it gained 0.2% against both the British Pound (GBP) and the Euro (EUR), although it was slightly lower (-0.05%) against the Japanese Yen (JPY). WTI crude futures settled lower, down (-0.7%) on the day at a price of $67.80/barrel.  Much of this move was attributed to the increasing value of the US Dollar (USD), though the oil price drop may have been larger had it not been for escalating tensions between Iran and the United States (creating unease about the shipping of Gulf oil through the Strait of Hormuz).



Higher Rates and Prices Dragging on Home Sales

Sales of previously owned homes in the US fell for a third consecutive month during June, weighed down by the increasing home prices, higher mortgage rates and tepid wage growth.  Existing home sales last month totaled a seasonally adjusted annual rate of 5.38 million, missing expectations of 5.44 million and falling 0.6% from the prior month’s level.  Compared to a year earlier, sales of previously owned homes were down 2.2%.  Median sale prices increased 4.5% YoY in June to $276,900 – a record high.  There were 1.95 million homes in inventory last month according to the report up from 1.87 million in May.



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